Buying a New Car - Financing and Such

[Gryffindorian]

To me, this process has rarely been easy.

When I first bought a new car back in 1997 (a Nissan Sentra), I had my older sister's help. She helped me get financing through a credit union because I had no credit history at the time, and the next step was just a matter of finding a simple sedan I could use for commute and to drive around town. I used the car for about nine years before I decided to get something better, and by that time, I had already paid off my loan.

When I bought a Honda Accord back in 2006 (about $21,000 plus taxes and fees), I didn't have to worry about trading in my old vehicle, which I simply gave away to my teen-aged nephew. Still, I remember putting some money down (at least $1,000) and got a reasonable interest rate. I kept the car for at least 18 months before I decided I wanted to cut down my monthly payments.

So I traded in the Accord for an older car (a 2001 VW Passat), and that served me well for a number of years until I started having mechanical problems with the Passat that cost me hundreds of dollars in repairs. That was when I decided to buy a new car (this time a 2011 Corolla), in which I had to put down $1,000 and got 1.9% financing for 60 months.

Now I'm looking into upgrading to a bigger (and perhaps somewhat faster vehicle), so I'm thinking about getting a mid-size sedan, at least a six-speed automatic and not necessarily a V6 engine. I've been looking at the 2012 Toyota Camry, Chevy Malibu, or Honda Accord, but my biggest challenge is financing. I now have a $3,000 negative equity in my 2011 Corolla, and I find it exceptionally difficult to shop for a new car I can afford without having to make any down payment. I have an average credit score, and most of the vehicles on the market are at least $21,000. My target monthly payment is less than $400.

I'm getting tired of dealing with car dealers and Internet managers offering me prices that are beyond my budget. What sucks is that I'm tired of having to make concessions while these dealers just want to take, take, take. Why do I have to come up with a down payment? Why are they only giving me so much trade-in value for my current vehicle, which is new?

What say you? Is this a good time to shop for a new car? What's your experience like shopping for a vehicle?

 

[Warp Coil]

As soon as you drive a new car off the lot, it depreciates in value. That's just how it works. It doesn't matter that it's a 2011 model and it likely has low mileage and little wear and tear. It's now a used vehicle, so you are going to lose money if you try to trade it in right away. Have you considered selling it privately? You will almost always get a higher price selling it than trading it to a dealer (check out Kelly Blue Book to see the value of your car, if you haven't done so already).

Unless you are able to sell your Corolla for enough money to break even, I'd advise against trying to purchase a new car, unless you want to enjoy a more expensive monthly payment (you'll have to finance the cost of the new vehicle and still pay off the balance on your current car).

Also, things to keep in mind before purchasing a new car. The automakers will likely start pushing incentives once summer hits (Memorial Day weekend, for example, might be a good time to buy... they will likely have lower interest rates and better deals). The 2012 Toyota Camry is a brand new model. The 2012 Malibu and Accord are both in their final year of their life cycle. All-new, redesigned models for the 2013 model year are due within the next few months. You'll be buying right before the redesign, which should mean you get a reliable, tested vehicle - but it's about to be outdated.

 

[Lindley]

You could consider leasing. The monthly payment is much lower, and it's a good way to pay off negative equity. The downside, of course, is that you don't end up with trade-in equity at the end.

 

[Ar-Pharazon]

I'd heard that some dealers were getting desperate for good used cars. So much so they were willing to give a trade-in value equal to the payoff of the car.

Not sure if that's changed recently. Couldn't hurt to ask around.

 

[Phoenicianknight]

I always get pre-approved financing at my credit union first, before we go look at cars.

I also am going to buy a new car pretty soon, and I am going to pick the new car through the internet, it is a little lower in price. I know what we want, a 2012 mustang, so I don't need to look at other cars.

This way, I am pre-approved and I spend as little time with the car vultures as possible.

 

[Lindley]

For your trade-in, check out CarMax. They will usually offer you a much better trade-in price than a dealership.

 

[RevDMV]

Well, for starters you gone the wrong direction, IMHO, on car ownership.

Generally, buying a used vehicle and keeping it long term is the best use of money on a vehicle.

Alternately, like you just did with your Corolla, getting a low or zero interest rate on a new vehicle is also a great way to go.

Unfortunately, Toyota is building a ton of Corollas in North America right now. The Tupelo MS plant is running full out and they want to keep it going. So Toyota Sales is offering 0% 60 months on new Corollas.

So your slightly used vehicle is worth as little as possible as trade in right now. As mentioned you best bet is to sell it yourself to maximize your return.

Although given that you traded back once from a 2006 to a 2001, as you stated, to reduce payments. I would think hard about locking into something more long term . Just to get something "faster".

 

[Gryffindorian]

Thanks, all, for the feedback. I suppose there are other options to consider, like buying a used car, leasing, looking for factory rebates/incentives. I read an article on trading in a vehicle, and the author said the best way to trade in is not to do it. ”Keep the car. Drive it until the wheels fall off.” Good advice, by the way, but not always practical.

 

[Captain_Nick]

From a financial point of view it's the best advice. Why do you want to replace your car? If it is doing the job, replacing it with something bigger seems expensive and unnecessary. Save the money you would spend on an upgrade and invest it in managed funds or securities that offer reasonable returns.

 

[RoJoHen]

I'm not sure I would ever buy a new car. You can an equally-good used car for significantly less money.

 

[tighr]

I now have a $3,000 negative equity in my 2011 Corolla, and I find it exceptionally difficult to shop for a new car I can afford without having to make any down payment. I have an average credit score, and most of the vehicles on the market are at least $21,000. My target monthly payment is less than $400.

I'm getting tired of dealing with car dealers and Internet managers offering me prices that are beyond my budget. What sucks is that I'm tired of having to make concessions while these dealers just want to take, take, take. Why do I have to come up with a down payment?

I think you need to re-evaluate what your budget is, whether that means adjust your expectation of how much car you can acquire for your target monthly payment, or adjust your expectation of what that monthly payment will be for the car you want.

You already stated that your credit is ok, but let's say you were lucky enough to secure 0%/60mo financing from a dealer. If you are only willing to pay $400/mo, then the MAXIMUM car you can afford is $24,000 O.T.D. (out the door). I'm not sure what the T.T.L. is in Hogwarts, but where I live in California tax is 7.25% and T&L is an additional 1.5%, meaning the maximum price of the car you can afford is really $21,900. (This, by the way, illustrates why its in your best interest to always negotiate the price of the car with your dealer in O.T.D. costs for simplicity sake). That's with ZERO down payment (you'd be lucky to get those terms from any dealer).

Now, you mentioned you are -$3000 on your current auto loan. Let's say you are able to get the maximum value for your car in a trade (unlikely). You would still owe an additional $3000, which would be lumped into your new auto loan. So the numbers now look like this: a $24,000 auto loan with 0%/60mo term, with the sticker price of the car not to exceed $18,900. All of these numbers are assuming you qualify for that awesome 0%/60mo loan. Far more likely is you qualify for something more like 3.9%/48mo, and with no down payment that's a car worth only $13,300 sticker ($14,700 O.T.D.), counting your trade-in.

So to answer your question, the reason that dealers are asking you to put a down payment and giving you such a tough time is because you simply cannot afford the kind of car you want.

To answer your other question, now is a great time to purchase a vehicle, and I personally enjoy the negotiation process with a dealer. My suggestions are to go to a site like Edmunds.com and figure out what invoice is for a car you like, and negotiate based on that value. Also, secure your own financing if the dealer isn't willing to approve you for theirs, and finally I would try to save up some money for a down payment.

 

[Ar-Pharazon]

I'm not sure I would ever buy a new car. You can an equally-good used car for significantly less money.

If you can get one with factory warranty remaining, that's not bad advice.

Or at least a good extended warranty with a low deductible.

Some things on newer cars cost tons of money to fix, that's my reasoning for wanting to have a new car every so often.

My 02 Monte Carlo had the defroster wires & antenna wires laminated to the back window. Somewhere a short happened and every time I turned on the defroster, the radio went out, so they replaced the whole window.

Over $1000 for the damn thing if it wasn't covered under the warranty.

Then they knocked off the connection for the defroster when they installed it, so they had to order up another one on their dime.

 

[Gryffindorian]

With all due respect, I did run the numbers, and while you're right, tighr, that the maximum I can afford is no more than $24K, it's not like the dealers are going to bend over backwards to give me what I want, and that's the problem! That's what I tried to do over the weekend when I was negotiating with a Chevy dealer on a new Malibu with a sticker price of $19,000 (which was a pretty good damned price). She quickly pointed out the negative equity in my Corolla. I agree with you that it's better to negotiate the out-the-door price, but the truth of the matter is I haven't found a dealer who's willing to say, "Oh, yeah, sure, you can have it for that amount. And we're even happy to throw in some complimentary fuzzy dice for you!"

 

[Kelthaz]

I read an article on trading in a vehicle, and the author said the best way to trade in is not to do it. ”Keep the car. Drive it until the wheels fall off.” Good advice, by the way, but not always practical.

Why not?

 

[Gryffindorian]

Why? Hmm, well, for one thing there's the issue of regulatory compliance. Back in August of last year, my VW Passat was due for a registration renewal, and the DMV wanted to have a smog check done. So I took my vehicle in for an inspection at a Smog-Test Only facility, and it FAILED. The technician said his computer couldn't read my VW's circuit board (which turned out to be defunct), and my Check Engine light had been flashing on and off for months. Hell, I even paid a non-refundable $70 fee for the inspection. I tried to get an estimate from the VW dealership in my area, and they gave me a quote of approximately $2,000 for the parts and labor. Holy shit! Where was I going to get that money? So I never did get to register the vehicle with the DMV and just paid a $15 Planned Non-Operation fee. Thus I ended up with the 2011 Corolla now.

There are other issues like safety and performance.

 

[Lindley]

Once a car gets to that point, trading it is reasonable. The question is then, why do you want to trade again so soon after getting the Corolla? If you're going to be switching cars that frequently, leasing is a much better option than buying.

 

[Holdfast]

I read an article on trading in a vehicle, and the author said the best way to trade in is not to do it. ”Keep the car. Drive it until the wheels fall off.” Good advice, by the way, but not always practical.

Why not?

For many people, a car is more than a purely functional entity so decisions about buying and selling are not purely financial. In other words net happiness (in their context) is not maximised simply by adopting the approach that minimises expenditure.

In any event, even on a purely financial scale the point that minimises expenditure isn't until "the wheels fall off" even taking it on a less than literal level. You'd need to carry out an individualised assessment of likely costs. For instance, spending a large amount annually to keep a creaky car on the road until it really dies could well be more expensive than buying a new(er) car. And then there's the whole problem of trying to estimate running costs when old cars become increasingly unpredictable, not to mention on the other side, the problem of adjusting the dollar value of a one-off large new expenditure on a new car vs lower running costs over an extended period of years. It's quite a tricky calculation, come to think of it.

 

[Gryffindorian]

Buyer's remorse, I guess. Don't get me wrong - I don't have to absolutely get a new car right this very minute. I have a working car that gets me from Point A to Point B, but I also want something with better performance in the long run.

I've never leased a car before because it's too much like renting it, not to mention I don't like the mileage restrictions. I'd like a vehicle with good performance, safety, and stability that I could afford and keep for at least five to seven years.

 

[B.J.]

Why? Hmm, well, for one thing there's the issue of regulatory compliance. Back in August of last year, my VW Passat was due for a registration renewal, and the DMV wanted to have a smog check done. So I took my vehicle in for an inspection at a Smog-Test Only facility, and it FAILED. The technician said his computer couldn't read my VW's circuit board (which turned out to be defunct), and my Check Engine light had been flashing on and off for months. Hell, I even paid a non-refundable $70 fee for the inspection. I tried to get an estimate from the VW dealership in my area, and they gave me a quote of approximately $2,000 for the parts and labor. Holy shit! Where was I going to get that money? So I never did get to register the vehicle with the DMV and just paid a $15 Planned Non-Operation fee. Thus I ended up with the 2011 Corolla now.

There are other issues like safety and performance.

Yikes. When I lived in Missouri several years ago, you had to get an emissions test done every 1 or 2 years. I think the test cost $25, and my 1992 Saturn SL2 at the time failed it. I had to take it to a shop to try and get it fixed, but it still failed the second time. Thankfully, Missouri state law said that if you paid at least $200 to try and get it to pass, you would get a waiver. (And believe me, we only did the minimum needed to get over that cost line.) We got rid of that car before we had to go through all that again.

At least now, I live in a state that doesn't have emissions testing!

 

[Lindley]

It was a Virginia emissions failure which prompted me to trade my 2000 Chevy Prizm for a 2011 Honda Accord as well.